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Energy, Environment and Resources Update

Environmental

Litigation Shoes on Other Feet

Over the past several weeks, the U.S. Environmental Protection Agency (EPA) website has presented four news releases on its homepage. One of these, a June 6, 2017 news release titled “Deadline Extended for 2015 Ozone NAAQS Areas,” describes a letter from EPA Administrator Scott Pruitt to state governors informing them that EPA had decided to extend the deadline for promulgating initial area designations, by one year, for the 2015 ozone National Ambient Air Quality Standard (NAAQS). Not included among EPA’s highlighted news releases is the more recent August 2, 2017 news release announcing a reversal of the June 6, 2017 extension – a reversal that came one day on the heels of the filing of a lawsuit by 16 state attorneys general challenging the June 6, 2017 decision to delay the area designation deadline.

It is not surprising that EPA has downplayed this reversal, as it represents the second of two recent setbacks for the deregulation program being undertaken by Administrator Pruitt. The first was the July 3, 2017 decision of the United States Court of Appeals for the District of Columbia Circuit holding that EPA cannot suspend an Obama administration rule restricting methane emissions from new oil and gas wells. This litigation defeat likely factored heavily into the decision to allow the original ozone area designation deadline to stand.

The relatively unpublicized August 2 news release includes the following statement from Administrator Pruitt: “Under previous Administrations, EPA would often fail to meet designation deadlines, and then wait to be sued by activist groups and others, agreeing in a settlement to set schedules for designation.” He added: “We do not believe in regulation through litigation, and we take deadlines seriously.” This statement is somewhat difficult to interpret, given that, in this very instance, Administrator Pruitt delayed the ozone area designation deadline, was sued by attorneys general for doing so, and then reversed course and agreed to the original designation schedule. The statement is also notable because Mr. Pruitt, when attorney general of Oklahoma, was renowned for working to change EPA regulatory policy through litigation, having sued EPA 14 times.

What Will Propel Our Cars and Trucks?

Over the past several weeks, the following items have all hit the news:

The Trump administration is “encouraging more coal mining on lands owned by the federal government” as “part of an aggressive push to... invigorate the struggling American coal industry.” New York Times, August 6, 2017

A South Carolina utility, SCANA, “announced to its investors that it is abandoning the construction of two nuclear power plants in the Palmetto State, citing rising costs that would push the total for the two facilities to over $20 billion. The abundance of cheap natural gas from American sources – thanks to the wonders of fracking – has altered the financial calculus and rendered new nuclear… economically nonviable. The announcement leaves the Vogtle power plant in Georgia as the only new nuclear facility currently still under construction in the United States. SCANA, via its subsidiary South Carolina Electric & Gas, has already sunk about $5 billion into the V.C. Summer nuclear facility in South Carolina, and its customers may be completely on the hook for those expenditures regardless of the fact that construction will never be completed and not one electron will be created from the venture.” CleanTechnica, August 4, 2017

“The U.K. said it would ban the sale of cars powered by traditional internal-combustion engines by 2040, joining other European regulators in a bold push toward populating roads with electric cars that remain unpopular in the mass market. The initiative… follows a similar move by France and efforts by several European cities from Munich to Madrid to ban or restrict diesel engines.” Wall Street Journal, July 26, 2017

“All new cars launched by Volvo from 2019 onwards will be partially or completely battery-powered, in what the company called a ‘historic end’ to building models that only have an internal combustion engine.” The Guardian, July 5, 2017

With nearly one quarter of the energy use in the United States being consumed by cars, trucks, light trucks and motorcycles, the growing prospect (if not triggered process) of a substantial shift from petroleum (gasoline and diesel) to electricity as the energy source for propulsion of our nation’s vehicles necessarily means that significantly more electricity will need to be generated (even after accounting for increases in vehicle energy efficiency associated with electric propulsion) to power the nation’s vehicle fleet. On economic considerations alone, the SCANA experience does not bode well for utility scale nuclear plants filling the void. Even with the Trump administration’s support of the coal industry, it does not seem likely that new coal-fired power plants will be selected as the answer. As of August 2017, the race would seem to be one between natural gas and renewables, with plenty of room for both.

Energy

ZECs Upheld in Two Courts

Two federal district courts, one in Illinois and one in New York, recently upheld the validity of zero emission credits (ZECs) for nuclear generators in each respective state. ZEC programs support nuclear generation and ensure that nuclear plants continue to generate low emissions power. Other independent power producers in both states challenged the constitutionality of ZEC programs.

The Illinois Legislature enacted the Future Energy Jobs Act in 2016, providing $235 million in ZECs annually to two Exelon nuclear plants, Quad Cities and Clinton. Competing independent generating companies challenged the application of ZECs, stating such payments interfere with wholesale markets regulated by the Federal Energy Regulatory Commission (FERC) and are prohibited by the recent U.S. Supreme Court holding in Hughes v. Talen Energy Marketing, LLC., 136 S. Ct. 993, which struck down an attempt by the Maryland Legislature to provide financial support for gas generation (seeEnergy, Environment and Resources Update, Issue 12).

In New York, the Public Service Commission (PSC) adopted ZECs in its Order dated August 1, 2016 (seeEnergy, Environment and Resources Update, Issue 16). Challengers relied on similar arguments to those used in Illinois. The judge in the New York District Court case dismissed challenges to the PSC’s Order, holding that the imposition of ZECs does not violate the Commerce Clause or interfere with federal regulation by FERC.

Supporters of the ZEC programs argued that ZECs were no different from RECs, which recognize carbon abatement whether or not sales are made into the wholesale market. In both states, the District Court judges found that, different from Hughes, ZECs do not subsidize the wholesale sale and only indirectly impact wholesale markets because their availability is not tied to sales in the wholesale markets.

Both cases have been appealed, the Illinois decision to the Seventh Circuit and the New York decision to the Second Circuit. Duane Morris will keep you apprised of further developments.

Energy, Environment and Resources Services

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